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Indian Prime Minister Narendra Modi. (Photo: Reuters)
Indian Prime Minister Narendra Modi. (Photo: Reuters)

PM's message: Use covid-19 crisis to Make In India, attract firms exiting China

  • According to analysts, Modi’s message of self reliance and opportunity was equally meant for the world and an internal audience
  • Foreign companies and supply chains have been planning to exit China in the recent years for many reasons

NEW DELHI: Home Minister Amit Shah had said all Central Armed Police Forces (CAPF) canteens will now sell only indigenous products, starting 1 June. Shah’s announcement came after Prime Minister Narendra Modi promised a 20 trillion stimulus package for the economy hit by the most stringent lockdown in the world.

With these canteens mandated to sell only India-made products, the money earned, which according to estimates is about 2,800 crore annually, is expected to be mopped up by the Indian industry.

Modi’s speech on Tuesday had two essential themes – 'self reliance' and 'opportunity'. He said self-reliance needs to be achieved by boosting domestic consumption of locally-manufactured products that would in turn strengthen the domestic industry. The covid-19 pandemic had given India a chance to turn the crisis into an opportunity, he said. Even though seeking self reliance, India is committed to global welfare, he said, adding India would create supply chains that could eventually link with global chains.

According to analysts, Modi’s message of 'self reliance' and 'opportunity' was meant as much for the world as much as for an internal audience. And this came against the backdrop of countries looking to move their production units out of China given the realisation of their overdependence on the world's second largest economy. The reason for this: Beijing’s manhandling of the covid-19 outbreak and its not-so veiled threats to use its economic strength and threaten or coerce other countries.

Foreign companies and supply chains have been planning to exit China in the recent years for many reasons--high labour costs, the country's shift towards high-tech economy as well as the fear of not getting caught in the US-China trade conflict.

Last year’s trade US-China spat had resulted in Washington threatening punitive tariffs on products made in China and shipped home, increasing the costs of manufacturing for companies based out of China. That threat caused many companies to move out of China but it was Vietnam and Bangladesh that received the bulk of them, not India despite New Delhi announcing measures like cutting corporate tax rates for new companies.

“The prime minister’s message was also about making India more welcome for foreign direct investments," said former foreign secretary Kanwal Sibal. This was clear when the prime minister mentioned “bold reforms" that would “encourage business, attract investment and strengthen our resolve for Make in India" Sibal said. He also noted that land, labour, liquidity and laws were part of the package that the prime minister had announced besides strengthening infrastructure. Predictable and transparent policies, land and labour reforms have been at the top of the investors’ wish lists despite India moving up places in the World Bank’s Ease of Doing Business rankings. The lack of clear land titles and digitized records for example has hampered the acquisition of land for industrial and infrastructure projects. Investors have also complained of obsolete labour laws in India that hamper their hiring and firing of workers. As a start, the state governments of Uttar Pradesh and Madhya Pradesh eased norms for hiring and firing labour earlier this month. With Modi’ speech more decisions could be expected to make India a “more attractive destination for foreign investment as investors look to move out of China," Sibal said. “The (Modi) government has to do intensive work taking into consideration domestic political fallout," he said.

According to Sibal, India could not become an alternative to China given that China is the world’s second biggest economy. “But India can get some benefits of supply chains looking to move out of China," he said. “This (what Modi said) is a start but we will need to find a solution to longstanding problems that are mired in domestic politics," he said.

Chandrajit Banerjee, Director General of the Confederation of Indian Industries lobby group said that “market reforms have for long been one of the urgent measures required to attract investments both domestically and foreign."

“Indian industry’s competitiveness has been historically at a disadvantage because of high cost of logistics coupled with poor infrastructure," he said adding: “There is a need to create land pools at the earliest where all infrastructure facilities are provided by the government like a plug and play model."

“Therefore the announcements of the Prime Minister suggesting land reforms, labour reforms, Infrastructure, etc would go a long way in making India a global attraction for investments including attract companies looking to exit other economies and now contemplating investing in investing elsewhere."

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